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Innovation for a Successful Future

Innovation for a Successful Future

James Sproule argues that free markets are the way to increase human prosperity and benefiting huge numbers of people in the long term.

Author

The pace of change that we have seen in the last few years has been absolutely unprecedented. Many times people say that whatever era they are living in is one of unprecedented change. But actually, what we are seeing now really does bear out of the idea that things are going to change more rapidly than we have seen ever before. Much of this is going to be due to social media. This is really an upside of social media because what we are experiencing now is the power of many millions of people having their voices heard in a way that has never been heard before. This is market economics. We have got many more people able to participate, able to have an opinion, able to have a voice. It is much less controllable by governments than it has ever been before as well.

I also want to emphasize that this pace of change is not inevitable or not equal as we go through time. If we look at something like transport between 1900 and 1970 we had huge jumps in what happened in transport. We went from the first manned flight to putting a man on the moon. This was an absolutely unprecedented change. What has happened since then to transport? Well, we have had the democratization of transport, surely. But that is all we have had. We haven’t had technological advances coming through. So, sometimes what we see as being inevitable isn’t quite as inevitable at all or isn’t inevitable in every sphere of our lives all the time. It is also important to remember that the pace of change isn’t always inevitably good.

There was a famous phrase by the leader of the Soviet Union at the time, Nikita Khrushchev, saying “We will bury you.” What he was talking about was the idea that the Soviet Union was going to overtake the West. When he said that he quickly backtracked because he realized it was too provocative phrasing and it was not something he really believed in. He just decided that nuclear war was a bad thing and the world was uncertain enough to have it provoking it any further. What he thought was going to happen was that the Soviet Union was going to overtake the West.

If we look at the 1950s, the Soviet Union did make rapid progress. It turns out that if you want to suppress workers’ wages, if you don’t care about the environment, if you don’t have any idea what your input costs are, if you don’t value liberty at all, you can make pretty good progress. In fact, a top-down system appeared to work, at least for a time. But then the world started to change and this top-down system proved to be completely inadequate to what we needed to have happened in the longer term. There is a really valuable lesson here in that what we need to have is a system that by its very nature is flexible, very agile. What kind of system does that? How do we make sure that we have that come through? There are a number of clear lessons we need to be learning in all of this.

First of all, we need free markets. One of the great things about the Free Market Road Show is that we are promoting the system which is going to be giving people the greatest degree of prosperity and control in and of their own lives. These are extraordinarily important things when we are looking at how do we want to progress in the longer term, how do we make those prosperous societies that we all want to live in.

Innovation

Innovation is going to be the key to the success. But innovation is not something that grows up. If we look at Matt Ridley’s very important book on how innovation works, he stresses, again and again, innovation is not something that you can simply put into forward gear and then it just progresses. You can’t possibly predict where innovation is going to take you. All you can do is make sure that the incentives are correct.

We can turn all the way back to Adam Smith and the Wealth of nations. He said, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” What we need to do is ensure that systems that we put in place work with everybody’s self-interest so that both the producer and the consumer benefit from any of these things.

What are we going to need to do? What are the things in the longer term that need to have happened to make sure that sort of innovation comes through? There are several and we have many of the building blocks of that intellectual property protection, which includes copyright, patents, and brand protection. The more service-oriented economies become, the more the value is created as part through intellectual capital, and the more that these things matter.

Moore’s law is the idea that the computing power doubles roughly every 18 months. That has continued on since the late 1960s and many people have thought that at some point we would hit diminishing returns. At some point we will hit diminishing returns. But it really doesn’t matter at what point we hit diminishing returns in Moore’s law because there is something else that is even more important happening underneath all of this.

If we look for instance at the electricity, that first came about in large amounts in the early 1800s. Originally it was used to power factories and as time went on we found more and more uses for electricity. The same thing is going to happen with computing power – more and more uses for that computing power will be found. It doesn’t matter if that computing power itself starts to show diminishing returns. The uses to which we can put that computing power are going to be continuing to grow for the next century or more. What that means is that societies which are going to be most prosperous are going to be societies that give protection to the people and that give the incentive to the people to create goods and services that all of us want. If we have that, if it is effective, if people trust it, they invest in it. If they don’t trust it, in many cases, they simply go somewhere else. We can see that when lots of times entrepreneurs from around the world, even if they would start at home they simply go somewhere else. That has happened to a lot of parts of Eastern Europe where societies lack the societal structure and the legal structures to help them progress locally, so they have to emigrate. They do so because they have a great vision of what is going to happen in the longer term. We all want those people to be as successful as possible.

Health

Health has been one of the areas which have absorbed increasing amounts of government spending over the years. And in fact, there is every reason to believe that should have had increasing amounts of government spending. We all understand that more of us are more informed about health than we have ever been before. We all consult doctor Google as a first stage in looking at any sort of health care issues that we might have.

But there is also an incredibly important economic case for investing in health. Much of the value that we add to our economy these days is in form of intellectual capital that we all possess. Taking care of that intellectual capital, taking care of ourselves and our health is incredibly important. So, making the argument that we want increasing amounts of money being spent on health is really very easy. The question becomes one of whether we should spend as much money on health as people want, whether we should as much as the experts think we should spend, or should we spend as much as we can afford.

Those are three very, very different areas. Look for instance at the United Kingdom between 1995 and 2015. We more or less doubled the amount of money we spend on health. At the same time life expectancy in the UK went from 77 years to 81. Clearly, there was some benefit to the economy as a whole, the people, the wholeness, the society became healthier and lived longer. The question has to be though: is that because we spent more money on health or not. Because at the same time that British longevity was increasing, it was increasing across all of Europe and yet their health spending wasn’t increasing as much. So maybe it wasn’t from that outcome. What we need to do is harness a lot more technology because one of the things we are absolutely certain about in our economies and our societies is that we have many calls on how we are going to spend the money and we need to make sure that we are spending it effectively.

Sustainability

There has been an enormous emphasis on sustainability recently; sustainability for the environment, sustainability of resources. There also equally have to be fiscal sustainability: that is we need to live within our means. The more we look at that the more we have to sit there and say to ourselves: how could technology help us; because one of the things that are very clear is that technology for many years of our lives has lowered costs. That has not been the case in medical technology. One of the key factors here is we need to use that technology to incentivize people to make sure that they can bring forward lower-cost health care.

When looking at what is going to make people happy in the longer term I have a deep suspicion that what people want is more money being spent on health, which they believe adds to a degree of social cohesion. And when they get that degree of social cohesion it makes them happier. Satisfying that happiness, making them appreciate that that is a good way to organize society is really important. At the same time, as I have said before, it also has to be put in a broader framework of fiscal sustainability and using technology to make sure that fiscal sustainability can be met.

Looking at fiscal sustainability I am reminded of a press release spoof I put together a few years ago. At the time there was an enormous pressure in the United Kingdom. Everyone was measuring in spending terms, in terms of how many more nurses one could afford at any particular time. I put the idea that what we needed to do was to sell off the contents of the national gallery because that was going to afford more money to be spent on nurses and also particularly the technology of cloning. Because the only way we were going to be able to find the number of nurses we were seeking was to clone them.

Clearly, there has to be a limit on how much money we spend at any particular time. That limit is obviously never going to come close to the idea we are going to sell off national assets in that manner. But we do need to be getting people happy with how we as a society organize ourselves. Constantly pushing on one particularly desirable way of spending money is not a way to create a happy and sustainable society in the longer term.

Innovation, Sustainability and Health

Here is where innovation and technology have such a key part to play in the future of the role of health. One of the things we can look at and what technology has done so many times in the past means that we need to bring technology to medicine. What technology has done so many times in the past is really lower our prices. We have seen the prices of computing power, we have seen the price of transport, we have seen in the price of a whole range of issues in our lives absolutely falling through the floor. But that hasn’t happened in medicine. We have to ask ourselves, what is going on here that hasn’t gripped medicine the same way it has affected so many other areas of our societies.

There is some hope here too. For instance the mapping of the human genome has come through very rapidly and very cost-effective. When we look at what people have done in terms of COVID – within 12 months we have developed effective vaccines. And not just once but in so many different ways that vaccines work. They are very different, they are all equally effective, but they are extraordinarily important. It has been innovation that has taken us there. What medicine needs to do now is figure out how are we going to make sure that we get cost-effective solutions. An undoubtedly enormous part of that is going to be on how do we make sure we have intellectual property protection, to make sure that those people in medicine are able to get the rewards of that.

That is not just about legal but also about social acceptance as well. One of the really depressing things that have happened during COVID has been the way in which AstraZeneca has said if it had to do it again it is not sure that it would have bothered to develop a COVID vaccine. Socially, the cost that they have had to bear in terms of criticism from various parts of governments and society has been so bad that they wished they hadn’t done it. That is a very depressing way to look at it. I prefer to look at much more optimistic outcomes, which is both AstraZeneca but also all the other pharmaceutical companies, what they have done and how they have done it.

This is clearly a global imperative and not everything is going to be driven forward by global imperatives. A lot of it is going to be driven forward by people collaborating, by people co-operating. In doing so, they are going to need their intellectual property protection. That is going to be the way in which all of us are eventually going to gain the health outcomes that lead us to be happier, healthier, and more productive in the long term.

Conclusion

What the Free Market Road Show delivers is absolutely critical and important and that is the whole idea of what happens in free markets, what free markets give us. The huge advantage of free markets is going to grow over time. The huge advantage they give us is the ability to take gargantuan amounts of information, synthesize that down and give us a long-term solution that has a self-correcting mechanism. No other way of organizing ourselves has been found able to do that. And the more information we have in our society, the more in which huge numbers of people are able to participate, the more which we are going to depend upon free markets.

There is people out there who say that what we are advocating is anarchy because we can’t produce a final plan. However, that is the enormous advantage of the free markets – that we don’t have a final plan. What we are looking for is how do we increase human prosperity, how do we make sure that we have a system which benefits huge numbers of people in the long term. And that is all we are really after – only to create prosperous societies. Those prosperous societies are going to be societies in which enlightened self-interest is the sort of thing that helps individuals and their businesses and those businesses help create that prosperity. That is a lot going to be a lot to do with intellectual property rights, a lot to do with making sure that we are healthier and happier and using the technology and information to make sure that we are that healthy, happy and prosperous society.

Author

  • James Sproule is a Chief Economist in the City of London and former senior business advisor to the Prime Minister Boris Johnson.

The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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